Monday, June 02, 2008

The last few years have witnessed substantial buoyancy in economic growth in emerging markets, especially India. A number of multinational companies, eyeing a piece of the India growth story, have undertaken transactions/ acquisitions which could directly or indirectly involve India-related assets. Media reports in the past have indicated that the revenue authorities are closely examining such transactions to ascertain whether appropriate Indian taxes have been paid on such transactions/acquisitions. In the context of a transaction executed by Foster’s Australia—a part of Foster’s Group Ltd—with SABMiller Plc., Foster’s Australia had approached the Authority for Advance Rulings (AAR) to seek determination of its tax liabilities in India owing to the transfer of Foster’s brand intellectual property, Foster’s trademarks and Foster’s brewing intellectual property.The relevant facts of the case before AAR are summarized below:Foster’s Australia, a leading international company engaged in brewing and marketing beer products, held a certificate of registration in India with respect to trademarks pertaining to the Foster’s brand. It had entered into a brewing licence agreement with Foster’s India Ltd, a Foster’s Group company. It had also granted Foster’s India an exclusive right to use the Foster’s trademarks in the territory of India. Subsequently, Foster’s and SABMiller executed an India sale and purchase (S&P) agreement which, inter alia, included the transfer of Foster’s brand intellectual property and trademarks to SABMiller in India. In addition, SABMiller was also granted an exclusive, perpetual and irrevocable licence of Foster’s brewing intellectual property in India by virtue of the S&P agreement. The S&P agreement was executed in Australia.Position unclearThe Income-tax Act, 1961, contains a deeming provision whereby certain income streams arising to non-residents (including foreign companies), directly or indirectly from a business connection, from any property in India, or transfer of a capital asset situated in India, would be subject to tax in India. The Act does not explain the circumstances under which capital assets such as trademarks, brands, etc., can be said to be situated in India. Hence, in what circumstances a property or an asset could be considered to be situated in India remained a vexed issue, especially in the case of trademarks and the like.The contention raised by Foster’s before AAR was that the transfer of trademarks and other intellectual property rights amount to transfer of capital assets and the situs, or where the property is treated as being located for legal purposes, of such assets was located outside India. Accordingly, the consideration thereof cannot be subject to tax in India.